Apr 25 Q1 iv),Q2 iv)

[Actuary@22]

Hi I have 2 doubts in this paper:

1.Pls explain what does this para mean in Q 1 iv) not very clear with the below lines from examiner's report.
"
The BEL would then be moved back to the unlocked basis [½]
before adjusting for any financial assumption changes [½]
which only impacts the BEL not the CSM".

2.Pls explain in Q3 iv),what is the below para saying.didnt understand at all that how will there be a mismatch in charges vs costs.

"It is possible that the shareholder has come to an agreement that the NPF will
charge the WPF 0.9% and all charges associated with UWP B will be charged to the
NPF
[½]
thus the charges to asset share equal the charges incurred by the WPF [½]
but the fund is described as 90:10 [½]
so if the WPF is charged the underlying costs [½]
together with shareholder transfers [½]
then there will be a mismatch between costs and charges"

Thanks in advance.

 

[Em Francis]

Hi I have 2 doubts in this paper:

1.Pls explain what does this para mean in Q 1 iv) not very clear with the below lines from examiner's report.
"
The BEL would then be moved back to the unlocked basis [½]
before adjusting for any financial assumption changes [½]
which only impacts the BEL not the CSM".

The CSM is not amended when financial assumptions (interest rates) change. It therefore stays calculated on the interest rates that were valid at policy inception – this is what is meant by the phrase ‘locked-in interest rates’. To determine the change in CSM that is needed in order to (at least partially) absorb the impact of the mortality assumption change, the value of the fulfilment cashflows is recalculated on the ‘before’ and ‘after’ mortality assumptions, but with the locked-in discount rates being used for both of these calculations. The difference between these two results is then taken as the change that is needed in the CSM. To calculate the impact from the change in financial assumptions, the BEL calculated using the financial assumption change will be compared to the BEL calculated with the current discount rate, ie 'unlocked basis'.

---

2.Pls explain in Q3 iv),what is the below para saying.didnt understand at all that how will there be a mismatch in charges vs costs.

"It is possible that the shareholder has come to an agreement that the NPF will
charge the WPF 0.9% and all charges associated with UWP B will be charged to the
NPF
[½]
thus the charges to asset share equal the charges incurred by the WPF [½]
but the fund is described as 90:10 [½]
so if the WPF is charged the underlying costs [½]
together with shareholder transfers [½]
then there will be a mismatch between costs and charges"

Thanks in advance.

The only charge made to the asset share is 0.9%. So if this is what is actually charged to the with-profits fund, then charges match costs. However, if more is taken out of the wp fund, eg 90% of costs plus shareholder transfers, then there will be a mismatch.